Question # 00003782
Posted By: spqr
Updated on: 11/20/2013 01:24 AM Due on: 11/29/2013
66
FUTURE VALE OF AN ANNUITY


WHAT
IS THE FUTURE VALUE OF A 5YEAR ORDINARY ANNUITY THAT PROMISES TO PAY YOU
$300 EACH YEAR? THE RATE OF INTEREST
IS 7 PERCENT.
67
FUTURE VALUE OF AN ANNUITY
DUE
68
PRESENT AND FUTURE VALUE OF
A CASH FLOW STREAM


An
investment pays you $100 at the end of each of the next 3 years. The investment will then pay you $200 at
the end of Year 4, $300 at the end of Year 5, and $500 at the end of Year 6.
IF
THE INTEREST RATE EARNED ON THE INVESTMENT IS 8 PERCENT, WHAT IS ITS PRESENT
VALUE? WHAT IS ITS FUTURE VALUE?

69
LOAN AMORTIZATION AND
EFFECTIVE INTEREST RATE


You
are thinking about buying a car, and a local bank is willing to lend you
$20,000 to buy the car. Under the
terms of the loan, it will be fully amortized over 5 years (60 months), and
the nominal rate of interest will be 12 percent, with interest paid
monthly.
WHAT
WOULD BE THE MONTHLY PAYMENT ON THE LOAN?
WHAT WOULD BE THE EFFECTIVE RATE OF INTEREST ON THE LOAN?
610
GROWTH RATES


Shalit
Corporation’s 2002 sales were $12 million.
Sales were $6 million 5 years earlier (in 1997).



(a.)

TO
THE NEAREST PERCENTAGE POINT, AT WHAT RATE HAVE SALES BEEN GROWING?



(b.)

Suppose
someone calculated the sales growth for Shalit Corporation in part (a) as
follows: “Sales doubled in 5
years. This represents a growth of 100
percent in 5 years, so, dividing 100 percent by 5, we find the growth rate to
be 20 percent per year.”
EXPLAIN
WHAT IS WRONG WITH THIS CALCULATION.




WHAT
IS THE FUTURE VALUE OF A 5YEAR ANNUITY DUE THAT PROMISES TO PAY YOU $300
EACH YEAR? ASSUME THAT ALL PAYMENTS
ARE REINVESTED AT 7 PERCENT A YEAR, UNTIL YEAR 5.


Solution: finance data bank